Make sure your donation counts

Only small percentage of donations often go to the program for which they are solicited

BY PJ HELLER | BALTIMORE |
November 4, 2012

Gail Adams thought she was doing the right thing when she opened her heart and her wallet to a charitable organization seeking funds to provide "crucial medical services and equipment to disabled and handicapped children in Vermont."

Unfortunately, less than half of one percent of the money raised actually went for that purpose, according to a suit filed by the state of Vermont against the companies and individuals connected with the solicitations.

Adams (not her real name) is just one of an untold number of contributors to various charitable causes who often discover -- or in some cases, never discover -- that their donations failed to reach their intended targets.

Vermont officials reported that less than 30 percent of the $1 million per year donated by the state's residents through commercial fund-raisers reach the charities, with the rest going to the fund-raisers.

Organizations like Church World Service -- which do not use commercial fund-raisers -- give "nearly all" of the donations received from the denominations to the programs for which they are solicited, noted Bob Arnold of CWS. Only a small percentage of funds received from the general public are used to cover costs of mailings and administering the disaster response, he said.

At the United Methodist Committee on Relief (UMCOR) and many other mainstream faith-based organizations, 100 percent of funds donated for a specific relief effort go to that project. Commercial fund-raisers are not used by UMCOR.

Karl Emerson, director of the Pennsylvania Bureau of Charitable Organizations, said there are good charitable organizations -- and bad.

"Most charitable organizations deserve our generous support," Emerson said. "However, there are also many unscrupulous organizations soliciting in Pennsylvania that employ fraudulent or deceptive fund-raising tactics to prey upon those who willingly extend a helping hand."

"While the vast majority of charities are honest and ethical in their fund-raising practices, there are unscrupulous operators who will seek to take advantage of American generosity," added Bennett M. Weiner, vice president and director of the Philanthropic Advisory Service of the Council of Better Business Bureaus. "The public should not let their guard down and should carefully evaluate appeals for support."

In the state of Washington, only about one-third of the donations collected by commercial fund-raising firms wound up in the hands of charities, the Secretary of State's Office there reported.

That meant that of the $126 million in charitable donations raised, $85 million went for fund-raising expenses and profit while only $41 million was given to client charities.

Washington officials noted that in one case, a fund-raiser reported turning over less than 2 percent of the total funds received.

Further south, in California, less than half of the nearly $193 million charitable donations collected by commercial fund-raising firms in 1997 made it to the charities, according to a report by former Attorney General Dan Lungren. The 43.7 percent of money that the charities received was an increase over 1996, when only 37 percent did, he noted.

"Simply put, substantially less than one-half of every dollar donated by Californians to charities which used these commercial fund-raisers did not go to charity at all, but instead went to solicitation expenses and to fund-raiser profits," Lungren reported.

"It is important to note that most of the 80,000 charities registered with the Attorney General in California do not use commercial fund-raisers to raise funds," he added.

The federal government estimates that between $1 billion and $2 billion of the more than $143 billion raised annually for charity in the U.S. is misused or ends up in the pockets of fraudulent solicitors.

State officials, like those in Vermont, are not only using the courts to address the problem but are trying to get the word out to citizens -- via the Internet and other means -- in order for the public to scrutinize charitable solicitations.

Some states are issuing reports, especially near the Christmas holidays, showing exactly how much money actually goes to a charity that employs a commercial fund-raiser. The states cannot require paid fund-raisers to disclose to potential contributors how much of each dollar raised goes to the charity. If asked, they are required to say where that information is available.

There are also no statutes limiting how much a professional fund-raiser can charge. Typically, companies are paid a fee for service rather than a percentage of funds raised.

The National Catholic Development Conference, the National Society of Fund-Raising Executives and the American Association of Fund-Raising Counsel all prohibit payments based on a percentage basis.

Recently, the Evangelical Council on Financial Accountability (ECFA) voted to prohibit payments to outside fund-raisers based on a percentage of the funds raised.

"Paying fund-raising consultants on a percentage of gift income can be tempting to an organization with no funds to pay the consultant to raise funds," said an article in the ECFA publication "Focus on Accountability." "The percentage payment concept may challenge a consultant to raise as much as possible. And it offers the charity a guarantee that its fund-raising costs will not exceed certain predetermined limits.

"However, ECFA believes contingency payments in relation to the amount of funds raised are not in the best interest of donors," it said. "Nor are they consistent with the trust donors place in a charity."

The ECFA noted, however, that outside fund-raisers often provide necessary and vital services for charities.

"The services of outside fund-raising consultants is very beneficial to many charities," it said. "...In some instances, the expertise of the consultants may surpass that of the ministry's staff. For many non-profits, outsourcing fund-raising services is often a logical choice. In fact, it may be more economical to purchase fund-raising services than to develop such capabilities within the charity."

Vermont Attorney General Bill Sorrell said the real key to charitable giving was for the public to be better informed.

"Because more than 80 percent of the money raised by charities comes from individual donors, it is very important that donors be cautious and have sufficient information to make wise giving decisions," he said.

Several organizations make that information readily available to the public. Among them is the Philanthropic Advisory Service of the Council of Better Business Bureaus in Alexandria, Va., the National Charities Information Bureau in New York, and the American Institute of Philanthropy in Bethesda, Md.

The Council of Better Business Bureaus suggests that no more than 35 percent of contributions be spent on fund-raising and no more than half of a charity's total income be spent on administrative and fund-raising costs.

"Some charities find it more efficient to pay professional fund-raisers to handle large-scale mailings, telephone drives and other solicitations rather than their own paid staff or volunteers," Vermont officials noted.

"Professional fund-raisers are in business to make money and can legally keep a portion of the money they collect. If you're solicited for a donation, ask if the caller is a paid fund-raiser and what percentage of your donation the fund-raiser will keep. If you're not comfortable with the amount, you may want to consider other options for donating."